In this Industry Insight episode of the On Aon podcast, Steve Schell and Nancy McCarrick discuss why healthcare strategy has become a critical business priority for life sciences organizations. As healthcare costs continue to rise, leaders must make disciplined decisions that protect workforce health, support innovation and strengthen long-term growth.
Schell and McCarrick explore why healthcare benefit decisions can no longer sit solely within HR, how data-driven insights can help leaders allocate resources more effectively and why closer alignment across finance, HR and the business is essential to building sustainable workforce strategies. They also examine how AI, advanced analytics and targeted investments can help organizations make smarter healthcare decisions, unlock greater value from benefits programs and position themselves to stay ahead in the competition for highly skilled talent.
Key Takeaways:
Experts in this episode:
Key Moments:
(01:40) Why healthcare costs are becoming a strategic leadership issue and what makes workforce and benefits decisions particularly consequential in the life sciences industry.
(05:50) How leading organizations are using data, benchmarking and total rewards insights to align healthcare investments with talent and business priorities.
(09:45) How AI, advanced analytics and targeted healthcare investments are helping organizations create more informed, future-focused workforce strategies.
Soundbites:
Steve Schell:
“Poor benefit decisions do not stay in the benefit budget. They show up in talent, productivity and growth. Across-the-board cuts can damage the employer proposition precisely where the life sciences industry needs hard-to-find talent.”
Nancy McCarrick:
“The central message is that healthcare strategy can no longer be separated from talent strategy. Organizations that succeed won't rely on one-time cost cuts. They're going to use data to understand workforce, evaluate healthcare within the total rewards pie and build that multi-year roadmap.”
Steve Schell
Poor benefit decisions do not stay in the benefit budget. They show up in talent, productivity and growth. Across-the-board cuts can damage the employer proposition precisely where the life sciences industry needs hard-to-find talent.
Intro:
Hello and welcome to On Aon.
In this week’s episode, we look at the Life Sciences industry and how its very generous benefits programs are creating new headaches for leaders.
Aon’s Steve Schell and Nancy McCarrick examine how life sciences companies can tackle rising healthcare costs without undermining workforce health or their ability to compete for specialist talent.
Here’s Steve to kick off the conversation.
Steve Schell
Hello there. My name is Steve Schell, and I am Aon's Global Life Sciences Industry Leader and welcome to the Industry Insight episode of the On Aon and podcast.
And, as my title implies, today we'll be taking a deep dive into life sciences and how companies in the industry are under pressure to control costs, keep innovating, and compete for specialized talent in the face of rising healthcare costs.
Joining me today to explore what's changed in employer healthcare strategy is Nancy McCarrick, who is Senior Vice President for a Health Solutions here at Aon. Welcome, Nancy.
Nancy McCarrick
Thanks Steve, happy to be here.
Steve Schell
Thank you. So as we begin, let's look at what's changed and what we're seeing in the marketplace. Let's get things started.
There's no doubt that life sciences leaders are making workforce decisions in a tougher operating environment. Uneven growth, targeted cost reduction, leveraging AI across their enterprise, continued competition for critical scientific, digital and commercial skills, plus any healthcare budget decisions need to compete with pay, development, innovation, and growth.
That makes it an enterprise allocation decision, not an isolated HR line item.
Life sciences businesses have moved on from annual vendor reviews and planned design changes.
Today it's more a question of how do we invest in the workforce health in a way that supports the business.
Nancy, what else are you seeing when it comes to healthcare spending?
Nancy McCarrick
Yeah. What feels very different today, Steve, is that every stakeholder in the healthcare ecosystem is fighting this same cost battle all at the same time. So, the payors, the insurance companies, the TPAs, they're under immense margin pressure. They've seen margin compression since 2020, their insured loss ratios are almost five percent above target.
The providers, so the doctors and the health systems are managing under immense reimbursement pressure from those health plans. And they're also getting significant loss of government subsidies on the hundreds of billions of dollars over the next 10 years from reductions in Medicaid and Medicare and rising operating costs.
Employers, as you mentioned, are confronting these sustained healthcare increases on one of their largest budget items. So we're seeing nine, 10 percent increases that are expected to continue.
And all of this is creating immense friction in the marketplace, which is worsening the employee experience.
And so that fourth stakeholder, the employees, are experiencing worsening health. They have lack of access to healthcare. And they have reached their limit in terms of how much they can pay out of pocket, out of their paycheck, when they access care.
For life science companies, this pressure is especially acute. Their benefits are among the most generous of any industry. And their value proposition for talent is to offer these highly competitive benefits.
So their answer, like you said, cannot simply be reduce coverage or shift more costs to employees.
The market is forcing these leaders to look at healthcare not as a standalone benefit, but as part of their overarching value proposition.
What else do you see in terms of what's at stake for these life sciences companies, Steve?
Steve Schell
It's a great question, Nancy. And as you and I have talked multiple times, it's one that requires involvement not only from benefits leaders, but finance as well.
Leading companies are attacking costs from a combined team of finance and HR members.
Poor benefit decisions do not stay in the benefit budget. They show up in talent, productivity and growth. I think across-the-board cuts can damage the employer proposition precisely where the life sciences industry needs hard to find talent. Unmanaged healthcare inflation erodes operating leverage and crowds out other investments, compensation, capability building, technology and expansion. And it all comes back to the HR function and finance working more closely together to solve this issue.
What else would you add here, Nancy?
Nancy McCarrick
I agree with everything you said. Companies that respond with short-term or blunt cost actions are risking solving one problem and creating several others. They're going to weaken their ability to attract and retain that critical talent, going to introduce unnecessary complexity or make care less accessible and ultimately hurt health, productivity, like you said, but also engagement.
And so the real question is not simply how do we lower healthcare costs? It's more how do healthcare costs affect the full value of our total rewards offer?
And we're seeing forward-leaning companies that are beginning to think differently or more broadly about who they compete with for talent.
They're leaning into understanding what employees value and how health, retirement, time off, compensation work together in that value proposition. That holistic view creates a know-before-you-go strategy rather than a series of reactive annual decisions.
Steve Schell
Reflecting back on your comments, Nancy, let's take a look at what a disciplined approach to managing healthcare costs look like. Why don't you get things started?
Nancy McCarrick
Steve, as you know, at Aon, we always start with data and setting a clear baseline, we think is critical.
So understanding how your healthcare spend compares to peers, not just benchmarking your design and contribution, but actually looking at what you're paying for that healthcare spend versus your peers, understanding what's driving costs and how benefits influence that total rewards proposition.
And of course, how employees perceive both your current programs and also any potential changes.
We at Aon benchmark holistically, Aon's Total Rewards Benchmarking combines this rich data set of our compensation, specifically for life science in our Radford McLagan data set with other rewards like health and retirement. We can even look beyond that to important benefits for job-seekers like time off. And this allows leaders to understand their competitive positioning against who they compete with for talent.
And we can look at that data in many different facets. So pre-commercial, how do you stack up against pre-commercial pharma or within geographic proximity, which is really critical when you're setting up manufacturing, or even adjacent talent markets like talent.
And this really sets the stage for a more precise basis for helping you decide where to lead, where to match, and where to redesign. We then translate all those insights into a multi-year strategy.
So, for life sciences organizations, benefits need to support the business, like you said, Steve, and they cannot distract from it. That makes drastic or complicated year-to-year changes very difficult. And a better approach is to sequence cost-saving actions with simplification, improved access, and a better employee experience so that each year builds on the next. What advice would you add beyond that, Steve.
Steve Schell
Yeah, I've got to echo your statement on data, right? It first starts with data and understanding the underlying data that an organization has collected and how they leverage it.
Then I'd say collaborate, collaborate. I can't underscore this enough. The return on investment that we see at companies who bring the best parts of finance and HR together, companies who create shared ownership — bringing in talent from finance, HR, benefits, procurement, and relevant business leaders around one set of objectives. I'd say the second: connect the strategy to business priorities. Map workforce segments, growth markets, critical roles, and operational risk.
And then set explicit trade-offs, decide what the organization will protect, redesign, or stop, and why.
And finally, use a multi-year roadmap, move beyond the one-off renewal actions and sequence changes so employees can understand and use them.
If we look forward and what's coming in two to three years and what companies are going to do differently, I think that's an interesting area to explore.
Let's first start by looking beyond the current cost cycle at what will define the next two to three years for life sciences organization and their healthcare spending.
And if we look at that — and look two to three years out — for life science companies, workforce strategy will become more segmented as leaders make sharper choices about critical talent, skills, and locations.
Finance will continue to expect better visibility into future liabilities and a clearer view of how workforce health investment supports business performance. And benefits will be assessed more explicitly against enterprise outcomes.
Growth capacity, productivity, resilience, and retention, not simply peer benchmarks. How about your thoughts, Nancy?
Nancy McCarrick
Agree with what you said. And what we're seeing is the next major shift is away from, within health, broad population programs to more targeted actions. So as we know, a very small share of employees and dependents drive a disproportionate share of healthcare spending. So about 1% of an employer's population will drive 20 plus percent of the spend.
And so now with large data sets and machine learning, employers can increasingly identify where future risk is likely to emerge. They can improve budgeting and align better with finance to have that budgeting accuracy. And they can direct their investments, whether that's clinical or wellbeing resources, where it can have the greatest impact.
I think too, AI is going to be a very important multiplier on both sides of this equation.
It may increase costs, hopefully in the short term. It already is. One example of that is providers are using ambient tools during office visits. And that's allowing them to improve their billing practices, which in the short term is increasing costs.
But it can also expand access, improve navigation, and create a more effective front door to care, especially for that 1% that's driving the disproportionate amount of cost. We think companies should begin now in strengthening their data foundation and governance, their vendor strategy and measurement capabilities so that they can adapt AI thoughtfully rather than just reacting to it later.
Steve Schell
I agree, Nancy.
I think the most important point is that we don't wait for the next two to three years. Start now. Establish a joint finance, HR governance forum, agree the key decisions you want to make and retire programs that cannot demonstrate value.
If there's one last thing, Nancy, like our listeners should remember about our discussion, what would that be? We've covered an awful lot of ground in the last few minutes. But what are the key takeaways you give to our listeners in the life sciences industry?
Nancy McCarrick
The central message is that healthcare strategy can no longer be separated from talent strategy, right?
Organizations that succeed won't rely on one-time cost cuts. They're going to use data to understand workforce, evaluate healthcare within the total rewards pie, and build that multi-year roadmap that we talked about that will balance affordability, access, employee experience, and keep that competitive positioning for talent.
If listeners remember one phrase, it should be: know before you go. Know what's driving your cost, know what employees value, and know how each decision affects the broader business before making the next move. What's your takeaway, Steve?
Steve Schell
The most effective organizations will not choose between cost discipline and workforce health.
They will connect it through shared ownership, focused data, and a multi-year plan. They will treat workforce health as an enterprise investment, put finance, HR, and the business around the same table, and make the choices against the strategy, not just the renewal.
That is our show for today. Thank you all for listening. We'll be back in the coming months with more industry insights on sectors including financial institutions and autonomous vehicles.
Many thanks to my friend Nancy for joining us today. And don't forget that you can find out more about how Aon helps the life sciences industry to grow and speak to the Aon colleagues about healthcare planning by visiting Aon.com. Until next time.
Outro:
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We’ll be back next week with our Global Insight, when we’ll be looking ahead to New York Climate Week and the big issues that’ll be discussed around climate risk and resilience.